Marketwatch
‘Trying to strangle local governments’: What happens when states and their cities become adversaries?
“Pre-emption happens all the time,” said Matt Fabian, a partner with Municipal Market Analytics. “It becomes an issue when nonrational reasons drive decisions or where the state sees the city or its residents as an adversary. There can be a certain tribalism that hinges on race or how people vote.”
Fabian, whose firm offers research for municipal bondholders, calls politically motivated pre-emption “an underappreciated risk in the muni-bond market. In general when cities default it’s less about finances and more about what the state does to not help the city navigate a situation. The political factor, the relationship and potential antagonism between a city and its state, is widely underinvestigated.”
Municipal-bond defaults are vanishingly rare, but conflict between city and state is a common thread in many recent episodes of municipal distress, which have often occurred in places where the city’s residents are primarily Black.